Are Bitcoin [BTC], Ethereum [ETH] & Ripple [XRP] securities?

Bitcoin, Ethereum, Ripple and other cryptocurrencies considered as securities or a mode of payment has been the most heated debate in the entire crypto community and in the world as more and more regulators try to define it.

There are a few concurrent stories right now that hinge on this. The SEC has recently come forward and stated that it could, in the near future, start calling few of the cryptocurrencies as securities given their nature. This would create legal issues for companies and their founders.

Anyway, if the SEC does end up classing them as securities it could cause some extreme volatility in the crypto market, even more than usual.

For any new entity to be classified as a security it has to be subjected to the usual laws and regulations regarding traditional financial assets. Meaning, it needs to be registered with the authorities according to the laws already set in place and be taxable as such. Any individual who has gained profits in cryptocurrencies, and converted those profits into cash, could be liable to pay taxes on those profits.

Any new exchange-traded fund like the one that the Winklevoss twins have just secured a patent for will be classified a security.

Cryptocurrencies are very different than the existing securities. It is a brand new asset class and the coins themselves will likely require new sets of rules that are more versatile and designed to encompass this new technology.

We live in a world which is moderately diversified allowing the laws to be different in every country. The Regulatory body of Switzerland has actually set an excellent precedent in their ICO guidelines, which breaks down the cryptocurrency classification into three different categories:

  • Payment tokens
  • Utility tokens 
  • Asset tokens 

Bitcoin can be categorized as payment token as it is designed to be a means of payment and store of value. Classic examples of Utility Tokens are Ethereum and Ripple’s XRP. Their design enables them to interact with their respective blockchains in order to provide access/payment to an application or service within the network.

Asset Tokens which are more like Securities, give the token holder the right to partial ownership of the company or foundation. This allows it to present itself with a share of the company or voting rights in the company.

The ETH tokens on the Ethereum network enables voting, but the act of holding the token itself does not give the HODLer the right to influence the network’s actions. Ripple’s token known as XRP is under the control of a private company called Ripple Labs and XRP holders are not entitled to any piece of that company.

The SEC considered the original DAO tokens in 2016 as securities.

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